Rx Collaborative Annual Report to Employers

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1 Rx Collaborative 2015 Annual Report to Employers

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3 Rx Collaborative Table of contents 2015 Annual Report to Employers Our value proposition to our clients...4 Letter from the Rx Collaborative leadership...2 Clinical update for Audit initiative...10 Data warehouse and reporting Looking ahead: 2015 and beyond Rx Collaborative: 2015 Annual Report to Employers

4 As of January 1, 2016, the Rx Collaborative includes 253 employers representing diverse geographies, sizes and industries, and 3.9 million covered lives. Letter from the Rx Collaborative leadership 2015 members Dear Members, 3,900, was a banner year. We increased our total membership by a record 13%, adding 50 new clients. This significant growth sends a clear message that in an increasingly competitive environment, our value continues to resonate. Feedback from our 2015 annual employer survey indicates that clients appreciate the financial savings, clinical expertise and service that only the Willis Towers Watson Rx Collaborative can provide. In fact, our survey results over the past several years consistently show that 98% of participating clients would recommend the Rx Collaborative. Fast facts 2015 prescriptions 31,800,000 Retail 25,600,000 Mail 6,200, drug spend $3,800,000,000 Retail $1,800,000,000 Mail $2,000,000,000 13% increase in membership 98% of employers surveyed would recommend the Rx Collaborative 2 willistowerswatson.com Our recent merger to become Willis Towers Watson offers increased opportunities for growth. We are excited with the possibilities ahead and the new breadth of solutions we can offer our clients. Willis Towers Watson s commitment to pharmacy consulting is stronger than ever. We are well positioned to continue to provide guidance and innovative solutions to our clients to reduce pharmacy trend and spend, including our specialty diagnostic tool. We have the largest practice among all our competitors, and our expertise is unsurpassed in the industry. The Rx Collaborative provides our members with financial savings, design flexibility, pharmacy benefit manager (PBM) choice, innovative management strategies and PBM oversight. Our members, partners and staff have built the Rx Collaborative into the nation s leading PBM coalition and continue to drive our success. Thank you for your continued support. If you have any questions, comments or suggestions, please contact your Willis Towers Watson pharmacy consultant, or me at jasmine. aral@willistowerswatson.com. Sincerely, Jasmine Aral Rx Collaborative Team Lead

5 Highlights of 2015 Membership As of January 1, 2016, our membership has grown to a record 253 employers, representing more than 3.9 million members and an estimated $4.5 billion in drug spend. Financials Through our in-depth Pharmacy practice and market intelligence, we leverage knowledge gained from working on procurements with multiple PBM vendors. We use audit results to ensure the Rx Collaborative contract language protects our clients. Rx Collaborative clients continue to realize significant savings through new contracts and price improvements. 199 clients received a midterm price improvement, effective January 1, The estimated average savings from the annual price improvement was 2%. New employers in the Rx Collaborative arrangement are estimated to realize an average savings of 6.2% over their previous arrangement. Pharmacy practice We have a talented and dedicated team supporting our clients. Willis Towers Watson s Pharmacy practice team of more than 90 members is larger than those of our competitors. More than 20 Rx Collaborative team members monitor marketplace dynamics, negotiate contract terms, handle grouplevel account management and manage the group audits of both our partners annually. Each Rx Collaborative client is assigned a pharmacist, and most also have a project manager to provide custom consulting and support. Industry changes Although the excise tax has been delayed two years to 2020, employers continue working to develop alternative benefit and utilization management strategies to combat excessive drug costs. While specialty drugs dominated the drug pipeline, record drug prices and inflation rates flooded national news headlines over the past year, attracting the attention of the 2016 presidential candidates. Rx Collaborative members specialty plan costs increased 22% per member per month (PMPM) in 2015 versus Willis Towers Watson s Rx Collaborative continues to prioritize specialty drug utilization, offering innovative solutions to help our plan sponsors aggressively and effectively monitor the pipeline and manage the current trend. Partnerships We continue to partner with the two leading PBMs in the nation to provide our members with choice among different business models. Express Script s (ESI s) model leverages home delivery, while CVS Health (CVS) offers mail-order pricing in its retail stores. Both offer competitive deal terms, customized account management, and innovative clinical programs and services. At the time of renewal, clients are able to choose between the two. Clinical expertise and guidance In 2015, two brand specialty drug classes with unprecedented costs entered the market. Hepatitis C drugs like Harvoni and Viekira Pak can cure the disease in over 95% of patients but at a cost of $80,000 to $100,000 per treatment. Now in clinical trials, new cholesterol-lowering drugs called PCSK9 inhibitors that cost approximately $12,000 per year may soon replace low-cost generics. Though these potentially represent significant advancements in treatment for high cholesterol, Willis Towers Watson helped our PBM partners roll out stringent utilization management strategies to mitigate unnecessary utilization of these drugs. We continue to collaborate to showcase best-in-class clinical recommendations and provide ample opportunities for improvement. Looking forward to continued success in 2016, our goals for the year include: Continuing to grow our membership and influence the changing pharmacy landscape Serving our clients with exceptional account management and advocating on their behalf Leading the market with comprehensive, best-in-class PBM strategies Creating new and proprietary specialty offerings to help our clients control costs 3 Rx Collaborative: 2015 Annual Report to Employers

6 Rx Collaborative Our value proposition to our clients Willis Towers Watson has the largest Pharmacy practice in North America, the largest pharmacy purchasing coalition the Rx Collaborative and an expansive group of specialists in health and benefit strategy, management and analytics. This scope and size positions us uniquely in pharmacy benefit management and gives our Rx Collaborative members significant competitive advantages. For over 10 years, they have benefited from financial savings in addition to value-added services, PBM governance, and advice on market changes and events. Savings The foundation of the Rx Collaborative s value proposition is our highly competitive deal terms. Together with audits, price improvements, and both clinical and formulary management, these terms lead consistently to substantial savings for members. Our pharmacy consultants develop a custom approach for each client, leveraging our exclusive Rx Collaborative strategies along with our PBM partners existing programs. With this coordinated approach, members have the tools to increase generic utilization, reduce waste and achieve significant savings. Members have access to pricing available only through our Rx Collaborative. A contract template means an easier contracting process that avoids pricing tactics. Annual market checks result in additional savings, ensuring that the Rx Collaborative s financial terms remain competitive throughout the length of a member s contract. We would never obtain the discounts and rebates that we have today without being part of the larger collaborative. We have a whole team working on our behalf, and I couldn t ask for a better team or working relationship. Donna M. Manzi, AVP of Benefits, Selective Insurance Company of America Advocacy The Rx Collaborative team closely monitors marketplace dynamics and oversees group-level account management, confirming that the client understands the implication of market changes and receives excellent service from our PBM partners. Our unique, joint account management team approach with our PBM partners aims to ensure the best possible experience for members. This joint team approach includes: A Willis Towers Watson pharmacy consultant working closely with our PBM partner Development of an account service plan and participation in up to four meetings per year (clinical and specialty program review, and implementation oversight) Escalation process to resolve major issues Annual group-level rebate audit Annual group-level discount analysis conducted by a third party Annual operational assessment of PBMs Annual employer meeting an exclusive forum for members to hear about the latest trends in health care, and share ideas and interact with peers and Willis Towers Watson consultants Monthly e-newsletters and quarterly calls to provide consulting recommendations and keep members current with clinical, legal and market updates Flexibility Unlike many other coalitions, Willis Towers Watson options allow clients flexibility to choose plan design, utilization management, retail network and formulary based on what s right for their company. Both Rx Collaborative partners, ESI and CVS are leaders in the industry, and represent a 60%-plus share of the PBM market. At the time of renewal, clients have the option of selecting either CVS or ESI as their PBM. 4 willistowerswatson.com

7 How best performers manage pharmacy The 2016 Willis Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey identified 43 companies that qualified as best performers based on their ability to both manage cost trend and improve efficiency. These companies lead all other organizations by taking action more consistently to support specific pharmacy strategies. The top actions taken by these companies are: Adopt a highperformance formulary with very limited brand coverage across the therapy classes: 24% of best performers versus 14% of national average = 10% lead Evaluate and address specialty drug costs and utilization performance through the medical benefit: 34% of best performers versus 26% of national average = 8% lead Exclude compound drugs: 57% of best performers versus 39% of national average = 18% lead Innovation We continually review our PBM partners utilization management and formulary strategies, and develop recommendations for implementation that can save clients up to 20% in drug spend: Specialty pharmacy recommendations, including preferred products, optimal distribution channel, utilization management and plan design Stand-alone specialty rebate guarantees Independent data warehouse for reporting and benchmarking Willis Towers Watson s broad portfolio of research and data combined with our expertise and experience allows us to develop best practices, innovative ideas and approaches that yield practical client solutions Our unique, joint account management team approach with our PBM partners aims to ensure the best possible experience for members. 5 Rx Collaborative: 2015 Annual Report to Employers

8 Rx Collaborative Clinical update for 2015 Pharmacy trend on the rise. As the Rx Collaborative continues to grow, so does prevalence and intensity. More patients are taking numerous medications with increased frequency. Specialty drugs continue to drive cost, accounting for almost one-third of the total pharmacy costs in In this section, the clinical highlights of 2015 will be reviewed, including: Drug trend, mix and inflation Specialty trend 2015 U.S. Food and Drug Administration (FDA) drug approvals PCSK9 inhibitors Biosimilars While Rx Collaborative membership and members using drugs increased 18.6% and 17.7%, respectively, overall drug utilization has slightly decreased by 3.0%. The number of prescriptions per patient (utilizer) has also decreased by 2.4%, while inflation (average wholesale price per day) increased 6.1%. Member cost as a percentage of total costs decreased 8.6% (Figure 1). Over the past seven years, nonspecialty PMPM has been consistently trending downward, decreasing from $81.94 in 2009 to $68.53 in At the same time, specialty costs continue to rise exponentially, from $11.01 in 2009 to $29.83 in 2015 (Figure 2). Drug mix. Drug mix was a significant cost driver in Specialty drug utilization increased 7% from 2014 to Specialty drivers such as immunological agents, growth hormones and cancer drugs increased the group s drug spend 31% from 2014 to As depicted in Figure 3, generics comprise 84% of overall utilization, while brands dominate the drug spend (77%). Drug prices and inflation dominate the headlines Pharmaceutical price spikes were at the forefront of the news in One of the most egregious examples garnered widespread national attention when the CEO of Turing Pharmaceuticals, Martin Shkreli, announced the price hike of Figure 1. Clinical stats at a glance Daraprim, used mainly by cancer and HIV patients, from $13.50 to $750 per tablet. Unfortunately, this was not an isolated instance. While most of the attention on pharmaceutical prices has been on new drugs for diseases such as cancer, hepatitis C and high cholesterol, we have growing concern about huge price increases of older generic and brand-name drugs that have long been treatment mainstays, or on formulary with significant utilization. Indicator Percentage change Members 3.2 million 2.7 million 18.6% Patients (utilizers) 2.4 million 2.1 million 17.7% Total prescriptions 31,878,484 27,745, % Gross cost $3.8 $ % Gross cost PMPM $98.36 $ % Plan cost PMPM $84.74 $ % Specialty as a percentage of gross cost 30.3% 24.4% 24.2% Average specialty prescription gross cost/claim Average non-specialty prescription gross cost/claim Utilization $5,506 $5, % $84.09 $ % Days per member (utilization) % Patients per member (prevalence) % Days per claimant (intensity) % Prescriptions per claimant % Inflation Average wholesale price per day* $6.17 $ % Cost share Members cost share 13.8% 15.1% 8.6% Source: Rx Collaborative data on file from CVS and ESI *Based on ESI data 6 willistowerswatson.com

9 Figure 2. Cross trends for Rx Collaborative clients $120 Figure 3. Rx Collaborative 2015 drug spend and mix by brands and generics 2015 drug spend 2% Covered charges PMPM $100 $80 $60 $40 $20 $0 $ $98.36 $92.96 $93.67 $91.24 $93.70 $89.75 $80.98 $76.88 $76.61 $70.76 $75.96 $68.53 $29.83 $24.53 $18.99 $17.09 $12.69 $14.37 $ Specialty drugs Non-specialty drugs All drugs Projected specialty Projected non-specialty Projected all drugs Source: Rx Collaborative data on file 23% 46% 29% 2015 drug mix (utilization) 1% 0.5% 14% Other examples that have come under close scrutiny include two heart drugs made by Valeant Pharmaceuticals (Isuprel and Nitropress ). When these drugs were acquired from Marathon Pharmaceuticals, Valeant promptly increased their cost by 525% and 212%, respectively. Valeant has taken a similar approach with many other acquired drugs. Fierce Pharma reported, The company has jacked up prices on 54 other meds this year [2015] alone by an industryleading average of 65.6%, according to a Deutsche Bank analysis. In 2014, it increased the prices of 62 drugs by 50% on average. Some of those increases were large ones. The largest increase in 2015 was Glumetza, which is now 550% more expensive than it was on January 1, Glumetza had the highest inflation increase for all drugs managed within the Rx Collaborative in 2015, followed by methylphenidate ER generic, Humira, Zetia and Enbrel. Fortunately, our Rx Collaborative PBM partners have price protection in place for more than 90% of their rebate contracts, and they continue to monitor drug pricing and inflation through rebate and other programs. Specialty drug utilization trends for the Rx Collaborative. While specialty drugs were utilized by only 1.4% of members, which represent just 0.07% of total utilization, these drugs account for a rapidly growing percentage of drug spend, increasing from 9% of covered charges PMPM in 2009 to 24% in 2015 (Figure 4). As a percentage of total utilization, specialty drugs account for a small proportion (0.55%). Autoimmune conditions, multiple sclerosis, cancer, hepatitis C and growth hormones dominate the list of specialty therapies. These top five account for 65% of specialty drug utilization and 80% of spend in % Brands without generic equivalents Specialty Generics Brands with generic equivalents 7 Rx Collaborative: 2015 Annual Report to Employers

10 Figure 4. Specialty costs as a percent of cost and utilization Specialty as a percentage of covered charges (PMPM) 40% 30% 20% 10% Specialty as a percent of total utilization (days per member per year) 1.0% 0.5% Source: Rx Collaborative data on file from CVS and ESI The fastest growing are new drugs for inflammatory/autoimmune and cancer. Overall, utilization of hepatitis C therapy one of the fastest growing last year remained consistent from 2014 to FDA approvals reach an all-time high was a very active year for the FDA. First-time drug approvals in the U.S. reached a 19-year high in 2015, with 45 new therapies cleared by the agency for use, up from 41 the previous year and the highest number in the new millennium. In 2015, specialty drugs accounted for 35 out of 45 (77%) new approved drugs. In 2014, 28 out of 41 (68%) were considered biologic or specialty agents. As was the case in 2014, the focus of new drug approvals continues to be in oncology and rare diseases, with 16 (35%) of 2015 approvals for cancer and eight (18%) for rare diseases. Figure 5 lists the drugs approved for rare diseases in 2016, many of which were first-in-class therapies. Clinical management activity and savings. In 2015, our clinical utilization management strategies saved Rx Collaborative clients an average of approximately $475 per edit. Our claims triggered approximately 647,000 clinical edits targeting over 1,000 specialty and non-specialty drugs. The highest volume of edits were for quantity limits (48%), Figure FDA approvals for rare diseases Manufacturer Drug Disease state Alexion Strensiq (asfotase alfa) Hypophosphatasia Alexion/Synageva Biopharma Kanuma (sebilipase alfa) Lysosomal acid lipase deficiency Asklepion Pharmaceuticals Cholbam (cholic acid) Bile acid synthesis disorders Baxalta Vonvendi (von Willebrand factor [recombinant]) followed by prior authorization (37%) and step therapy (14%), as noted in Figure 6. The savings associated with each edit were driven by the cost difference between the targeted prescription order and the preferred drug. PCSK9 inhibitors. The PCSK9 inhibitors are new injectable drugs (monoclonal antibodies) approved to treat a rare disease called familial hypercholesterolemia. They entered the market in the summer of The PCSK9 inhibitors (Repatha and Praluent ) have been shown to lower cholesterol and are currently being studied in trials, with outcome data due in If outcome data are favorable (demonstrating a meaningful reduction in heart attacks and stroke in vulnerable populations), the utilization of these drugs will likely increase dramatically. The PCSK9 agents are priced at approximately $12,000 per year, compared to generic statins, which cost approximately $300 per year. Because of the limited indication and very high cost, the goal of the Rx Collaborative has been to confirm that PBMs will manage these drugs aggressively and according to all applicable clinical guidelines. Extensive prior authorization criteria by PBM vendors has minimized utilization, as noted in Figure 7, denying 87% and 58% von Willebrand s disease Bioproducts Coagadex (factor X) Factor X deficiency Emergent Biosolutions Inixity (recombinant factor IX) Hemophilia B Taro Keveyis (dichlorphenamide) Familial periodic paralysis Vertex Orkambi (lumacaftor/ivacaftor) Cystic fibrosis Adapted from 8 willistowerswatson.com

11 Figure 6. Utilization management strategies by volume Statistic 37% 14% Quantity limit Prior authorization Step therapy 48% Source: Rx Collaborative data on file from CVS and ESI Figure 7. Rx Collaborative PCSK9 inhibitor 2015 utilization management results Total Prior authorization total requests 282 Prior authorization denials 245 Prior authorization denial rate 87% Appeal total 31 Appeal denials 18 Appeal denial rate 58% Total number of prescriptions 186 Total number of users 74 Source: Rx Collaborative data on file from CVS and ESI of appeals in Additional PCSK9 inhibitors are in the specialty pipeline, including Pfizer s bococizumab, which is currently in phase 3 trials. Biosimilars. The FDA has approved only one biosimilar to date Zarxio (filgrastim-sndz) by Sandoz (approved in March 2015). Due to ongoing litigation, Sandoz did not launch Zarxio until six months later (September 3, 2015). Because it is a biosimilar, Zarxio is not interchangeable with the originator drug, Amgen s Neupogen (filgrastim) and must be ordered specifically by the provider. It is possible that additional biosimilars will come to market in 2016 and These include: Enbrel (etanercept) Neulasta (pegfilgrastim) Epogen /Procrit (epoetin alfa), Retacrit Humira (adalimumab) Summary Nearly all Rx Collaborative employers responding to our 2015 annual employer survey rated clinical management and specialty management as very important (100% and 97%, respectively). Utilization of generics continued to increase in 2015 due to patent expirations and utilization management strategies that promote generics as first-line therapy. Cost management challenges resulted from the increased use of existing specialty drugs, particularly for rare diseases and oncology. Rx Collaborative plan sponsors adopted comprehensive utilization management strategies, including formulary and compound exclusions, as well as aggressive prior authorization criteria for specialty drugs such as PCSK9 inhibitors and hepatitis C drugs. These criteria will expand as new drugs become available and treatment guidelines evolve. We expect utilization management strategies to vary widely for the biosimilars, depending on the FDA labeling of new products and interchangeability. The launch of biosimilars provides an additional opportunity for plan sponsors to manage drug spend but will require careful consideration of clinical and financial variables, including rebates and discounts. Willis Towers Watson recommends the following approaches: Confirm enrollment in existing specialty utilization management programs for biosimilars like Zarxio (i.e., step therapy, prior authorization and quantity limits). Review your summary plan description for biosimilar language. Review requirements with your PBM account team and determine if any changes should be made. Consider alternate benefit designs. As many employers are familiar with threetier benefit designs, consider a separate tier for specialty products or further differentiate as described above. Explore coinsurance versus copays. While the majority of plan sponsors use copay designs, consider a larger differential (e.g., $20 $35) between tiers or investigate a coinsurance structure with a per-prescription maximum. Align medical and pharmacy benefits to ensure equal drug costs. With a product such as Zarxio, which can be obtained through medical or pharmacy benefits, take steps to incentivize members and identify cost-saving opportunities across channels. Evaluate the full suite of specialty management programs. Speak with your Willis Towers Watson pharmacy consultant and account teams to discuss additional alternatives. References Willis Towers Watson Rx Collaborative e-newsletter, December 2015; accessed on January 29, 2016: Willis Towers Watson Rx Collaborative e-newsletter, January 2016; accessed on January 29, 2016: Willis Towers Watson Rx Collaborative 2015 Employer Leadership Service Report, data on file 9 Rx Collaborative: 2015 Annual Report to Employers

12 Rx Collaborative Audit initiative Now more than ever, employers must ensure the efficiency of their pharmacy benefit by focusing on both its cost and delivery. High-performing companies know that a well-executed audit program assures employers that their vendors adhere to their contract terms. The Willis Towers Watson 2015 Best Practices in Health Care Survey showed that 38% of best performers so designated based on their superior cost and value results performed an audit of their PBMs in 2015, compared to just 30% of companies that perform at the national average. Best performers create a distinct financial advantage for themselves by leading competitors in taking actions, such as a pharmacy audit, to rein in costs and improve the performance of their health care programs. Rx Collaborative clients have access to a robust, three-part annual audit initiative that includes: Group-level claim audit Rebate review Operational assessment These audits provide a level of assurance that would be difficult and expensive to achieve on a direct basis. Employers without membership in the Rx Collaborative could pay in excess of $100,000 annually to obtain the level of governance Rx Collaborative members receive as a benefit. Group-level claim audit A key component of the annual audit initiative is the group-level claim audit designed to verify that the PBM correctly applies the pricing terms of the contract. To perform this review in 2015, Willis Towers Watson contracted with Caribou Systems, a company we ve worked with for more than a decade that specializes in pharmacy claim administration and auditing. The 2015 audit included over 32 million claims from 200 clients in the ESI arrangement. The audit found that with few exceptions, ESI correctly applied the contracted discounts and dispensing fees according to their contract terms. Some of the exceptions included: Rx Collaborative three-part annual audit initiative Effective pharmacy management Ensure compliance with contract terms Improve process Group-level claim audit Verify that the PBM applied contracted discounts and dispensing fees across the group. Rebate review Using a representative sample, verify that the PBM passed through rebates according to manufacturer contract terms and that yearend rebate amounts were accurate. Operational assessment Review the PBM s effectiveness in delivering service to clients and members, and compare to industry standards. Incorrect specialty setup for some clients Improved Copaxone discount not applied to some claims Improved discounts for participation in some programs not applied to some claims Willis Towers Watson works with the PBM to ensure payments are made to impacted clients, and process improvements are identified and implemented so future errors are minimized. In 2016, Willis Towers Watson will perform a group-level PBM claim audit of both ESI and CVS. 10 willistowerswatson.com

13 Rebate review For the 10th consecutive year, Willis Towers Watson selected KPMG to perform our annual PBM rebate review on behalf of Rx Collaborative employers. KPMG s audit team has extensive experience conducting rebate, claim pricing and operational reviews for plan sponsors, including health plans and employer groups. Our review in 2015 included 57% of the total rebates paid by five drug manufacturers to a sample of 15 Rx Collaborative plans in the ESI arrangement including both commercial and Employer Group Waiver Plan contracts. The goals: To verify that the PBM complied with contract terms requiring full pass-through of all manufacturers revenue To verify that the PBM correctly calculated the year-end guaranteed rebate amounts The audit found that with few exceptions, ESI rebate payments accurately reflected the dollars received from the respective manufacturers based on the terms in the rebate agreements. Further, for each plan, KPMG reviewed the Formulary Guarantee Savings Report and was able to verify that the claim counts per prescription type and the guaranteed rates agreed with the terms of the contract. Having been associated with other Rx Collaboratives that did not go the extra mile to ensure all rebates, payment and contract terms are adhered to, we ve been very pleased with WTW s performance and attention to detail. Darlen Carson Director, Benefits Rayonier Advanced Materials Inc. In 2016, Willis Towers Watson will perform a PBM rebate review of both ESI and CVS. Now more than ever, employers must ensure the efficiency of their pharmacy benefit by focusing on both its cost and delivery. 11 Rx Collaborative: 2015 Annual Report to Employers

14 High-performing companies know that a well-executed audit program assures employers that their vendors adhere to their contract terms. Operational assessment In 2015, the Rx Collaborative audit team performed the third leg of its initiative, an operational assessment of CVS and ESI, which included a review of both PBMs responses to a comprehensive questionnaire as well as site visits. The goals of this audit were to determine each PBM s overall effectiveness in delivering service, identify administrative issues that could lead to disruption and highlight process improvement opportunities. The review focused on core services provided to clients and included: Retail networks Mail services Billing, invoicing and payment procedures Clinical programs Customer service Claim administration Account management Specialty An onsite visit to ESI s mail facility and Oncology Therapeutic Resource Center in Whitestown, IN, which included a tour of the back-end home delivery fulfillment center and an overview of the center s purpose, depth of specialization and intensive care model An onsite visit to CVS s Mt. Prospect, IL Customer Center, an interactive space for clients, to view the entire member experience through all touchpoints, including a demonstration of an interactive exhibit of the member experience and a presentation of the Trend Analysis Dashboard The reviews found that ESI and CVS have the processes and capabilities to support a high level of service to Rx Collaborative clients and members. Our audit team determined that the capabilities of both PBMs meet or exceed industry standards in each of the core operational areas. Our audit team identified some opportunities for process improvements and will work with the PBMs to implement them. Actions identified include: Increasing enrollment in PBMspecific management programs identified as best practices by Willis Towers Watson Enhancing capabilities to automate identification of non-fda-approved drugs in compound medications Further improving turnaround times on claims processed through the mail channel In 2016, Willis Towers Watson will again perform an operational assessment of ESI and CVS. 12 willistowerswatson.com

15 Rx Collaborative Data warehouse and reporting Our proprietary Willis Towers Watson Rx Collaborative Data Warehouse continues to innovate, providing clients with value-added information to support strategic decision making. This year, we organized a task force consisting of pharmacy consultants and members from the Data Warehouse and Health Analytics teams to develop a new approach to pharmacy reporting. We re proud of the results. The new reporting has a fresh, easyto-read dashboard design and provides actionable statistics, including yearover-year trends on generic dispensing rate, specialty cost PMPM, and mail order penetration (all with a threeyear lookback). In addition, the report includes custom benchmarks that allow clients the ability to compare performance against that of their peers. In January 2015, membership in the arrangement with CVS reached the necessary threshold to begin offering our data warehouse capabilities and provide reporting for the first time to those clients who have CVS as their PBM. With our data warehouse capabilities now available to clients participating in both PBM offerings ESI and CVS participation continues to grow. We produced 130 annual reports for ESI clients and 27 annual reports for CVS clients in The constantly changing PBM landscape makes it imperative to have key information available to inform strategic decision making. We ve created the dashboard reporting to facilitate discussions with your pharmacy consultants statistics for the Rx Collaborative clients in the data warehouse Benchmark statistics Gross cost PMPM $ Gross cost trend 0.5% Specialty spend 15.7% to 16.2% Generic dispensing rate 81.5% to 83.2% Member cost share 10.3% to 14.6% Rx Collaborative pharmacy reporting dashboard 13 Rx Collaborative: 2015 Annual Report to Employers

16 Rx Collaborative Looking ahead: 2015 and beyond Employers continue to be challenged to provide affordable health care benefits for their employees: Their cost is still trending above the rate of inflation. One driver of cost, as we know from some high-profile news headlines in 2015, is drug inflation. There are growing signs that health care cost trends could be heading higher, mostly due to expensive new prescription drug treatments. Additionally, in 2020, the Affordable Care Act s 40% excise tax begins on plans with costs over IRS thresholds tied to the Consumer Price Index, which we estimated 38% of companies would trigger in 2018 and 73% by 2023 if they don t make changes.* No wonder, then, that the vast majority (83%) of employers responding to the 20th Annual Willis Towers Watson/ National Business Group on Health Best Practices in Health Care Employer Survey consider making benefit changes to avoid the excise tax a top priority. Now that the tax has been delayed until January 2020, employers have the opportunity to use the additional two years to actively engage in strategies that mitigate their exposure to the tax and consider future trends and best practices to promote workforce health and wellness. Specialty costs lead list of employer concerns Specialty drug utilization and costs remain major pain points for employers. More than half of employers surveyed (53%) have already implemented utilization management strategies, which is expected to rise to 85% by A quarter (26%) have addressed specialty spend under the medical benefit, a number that is expected to triple (to 79%) by Management of high-performance formularies is on the rise, with 42% expecting to do it by A majority of employers (60%) are looking to manage site of care for medical specialty drugs by Nearly four in 10 (39%) employers either have already narrowed the retail network or plan to do so by Specialty drug costs for the Rx Collaborative totaled $1.15 billion in 2015 (up 44% from 2014) and accounted for 30% of overall pharmacy spend. Willis Towers Watson has several specialty strategies in place to help plan sponsors with trend reduction as a priority. Our Specialty Diagnostic program provides a deep dive to aggressively manage all facets of specialty utilization. Learn more through your Willis Towers Watson pharmacy consultant. Pipeline management There are over 60 agents in the nearterm pipeline expected to receive U.S. FDA approval over the next 18 months. Specialty products continue to dominate the pipeline, including many high-cost drugs for rare diseases and oncology. Although these drugs do not impact large numbers of users, the annual cost is significant and expected to range between $50,000 and $300,000 per person per year. The following drugs are expected to enter the market in the first half of 2016: Kyndrisa and Sarepta represent brand new treatment and usage for the rare disease Duchenne Muscular Dystrophy, which affects 20,000 boys within the United States. The pipeline is rich with hepatitis C drugs. Two products are expected to be approved in the first half of 2016, with the first pan-genotype agent (sofosbuvir/velpatasvir) used for all types of hepatitis C. Obeticholic acid will initially be approved in a rare disease called primary biliary cirrhosis, which is estimated to impact 16,600 people in the United States. This drug is the only treatment for this disorder. It will likely also be approved in late 2017 for nonalcoholic steatohepatitis, or fatty liver disease, which will significantly increase the number of utilizing members for this drug, affecting 14 million people in the U.S. Ixekizumab is a new interleukin agent to compete with Enbrel, Humira, Stelara, Remicade, Cosentyx and Xeljanz. Since approximately 40% to 50% of people living with moderate-to-severe plaque psoriasis are dissatisfied with their current therapies, utilization for this new product could be high. Another agent (brodalumab) will follow shortly after, in the second half of *The excise tax will require plan sponsors to pay a surcharge for plans that exceed certain thresholds (estimated to be $10,200 per covered single employee and $27,500 per covered family). The projection is based on guidance received to date and is subject to change as the regulatory guidance continues to unfold. 14 willistowerswatson.com

17 Technology and telemedicine Telemedicine represents a key technology trend, with global market estimates for $27 billion in industry spend by About half (46%) of employers surveyed are currently engaged in telemedicine initiatives, with almost all (90%) expected to implement them by However, less than 10% of patients actually use telemedicine. To prompt usage, many employers offer favorable reimbursements. Nearly a third (31%) of employers with telemedicine services offer lower copayments or charges for telemedicine consultations. As of 2014, 20 states require private insurers to pay for some telemedicine services. 3 Assessing vendors and networks An overwhelming number of plan sponsors (89%) consider evaluation of their vendor strategy to be a priority. Almost three-quarters (74%) use performance guarantees, while well over half (66%) are choosing to integrate health management programs. About half of plan sponsors responding want to involve vendors in strategic planning (47%) and require them to do employee outreach (56%). Vendors also need to incorporate integrated reporting into their packages. The Rx Collaborative continues to work with our PBM partners to provide both medical and pharmacy integrated data. While only 11% of employers use highperformance networks, a majority (61%) are expecting to assess highperformance or narrow networks in their provider network strategies by Additionally, the AMCP states that 14% of the U.S. population are using one of the more than 600 accountable care organizations (ACOs) across the country. 5 Early data on ACOs are promising, but improved adherence and outcomes remain to be seen on a long-term basis. Several providers offer telehealth services, and even retail pharmacies are entering this market with in-store kiosks and pharmacist consults. 4 Specialist physician-to-physician consults are also under way, with the Mayo Clinic and the University of Virginia providing services both locally and nationally. 2 Using kiosks, pharmacies can offer affordable urgent care services onsite. And patients don t even need to be physically present in a pharmacy to benefit from these services; they can use web apps on mobile devices. The Academy of Managed Care Pharmacy (AMCP) notes that 25% of consumers use their mobile apps to schedule doctor appointments. 5 Employers are increasingly interested in using telemedicine for diabetes management; researchers note that costs could be reduced 9% per year. 6 The use of digital to provide health care services will continue to grow rapidly as more adopters become engaged and find cost savings over traditional models. Figure 8. Pharmacy benefit management strategies 0% 20% 40% 60% 80% 100% Implement step therapy programs that drive generic utilization Evaluate pharmacy benefit contract terms Adopt new coverage or utilization management as part of the specialty pharmacy strategy (e.g., require prior authorization or quantity limits based on clinical evidence) Exclude all compound drugs Implement a more aggressive mail-order or 90-day incentive program Conduct an audit of the PBM Evaluate and address specialty drug costs and utilization performance through the medical benefit Implement coverage changes to influence site of care for specialty pharmacy through the medical benefit Adopt a high-performance formulary with very limited brand coverage across the therapy classes Offer a narrow retail network Action taken/ Tactic used in 2015 Planning for 2016 Considering for 2017 or 2018 Source: 20th Annual Willis Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey, Rx Collaborative: 2015 Annual Report to Employers

18 Figure 9. Employer use of provider strategies to grow by % 20% 40% 60% 80% Contract with health plan for services at COE Implement high-performance/narrow networks Offer medical tourism services and cover employee expenses (e.g., travel costs) Engage a third party to secure improved pricing on medical services (i.e., direct contracting with providers) Contract directly with provider(s) for services of ACOs Contract directly with provider(s) for services at COEs Contract directly with provider(s) for services of PCMHs Action taken/ Tactic used in 2015 Planning for 2016 Seven percent of plan sponsors surveyed use ACOs, which may jump to 22% in the next few years, while use of patientcentered medical homes (PCMHs) is expected to surge to 19% from just 5%. 1 Employers also expect to see an expanded use of centers of excellence (COEs), with 37% of those surveyed already using them and an additional Considering for 2017 or 2018 Source: 20th Annual Willis Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey, % planning to by Employers generally contract directly with their health plan and not with the COE provider. Historically, COEs have been used for transplant services, but employers are also considering their use in other areas, such as infertility, maternity and surgical (bariatric, cardiac, orthopedic, oncology). Value-based health care The concept of value-based health care is not new; in fact, value-based insurance design (VBID) started about 15 years ago. In theory, high-value services are priced low so they will be used more, while low-value services cost more so they will be utilized less frequently. VBID represents another tool that enables employers to ensure quality by improving adherence. 7 Value-based, or value-oriented models for benefit design and provider reimbursement are newer strategies used to promote best-in-class services and products. According to ESI, over half (53%) of employers wish to employ a pharmacy benefit value design. Valuebased pharmaceutical contracting is starting to gain more traction to maximize cost savings through costeffective utilization of medications. Health plans like Harvard Pilgrim have started value-based contracting for drugs like PCSK9 inhibitors. 8 ESI has initiated a program to provide premium reimbursement for oral oncology drugs. Additional therapeutic areas like hepatitis are also being explored. Figure 10. At a glance: top drugs to watch over the first two quarters of 2016 Drug Condition Expected approval Kyndrisa TM (drisapersen) and Sarepta (eteplirsen) Duchenne Muscular Dystrophy January 7 and February 26, 2016 Specialty/ Nonmedical/ Pharmacy Specialty: medical (intravenous, subcutaneous) Estimated cost per year 2016 projected sales $300,000 $99 million and $10 million (U.S.) Grazoprevir/Elbasivir and sofosbuvir/ velpatasvir Hepatitis C January 28 and June 28, 2016 Specialty: pharmacy (oral) $80,000 $626 million (global) Obeticholic acid Primary biliary cirrhosis February 29, 2016 Specialty: pharmacy (oral) Ixekizumab Plaque psoriasis March 1, 2016 Specialty: medical (subcutaneous) $50,000 $50 million (global) $55,000 $1 million (global) 16 willistowerswatson.com

19 Employers are eager to utilize other value-based strategies. By 2018, three-quarters of employers will use lower copays or charges to incentivize employees to use telemedicine consults. Almost half (49%) of employers will target the medical benefit, while 53% will focus on pharmacy-based value design. 1 It s important to note that the major challenge is developing a consistent definition of value and benchmarks to ensure long-term cost savings for these types of programs. 5 Summary Employers are actively engaged in addressing some of their major pain points, especially specialty pharmacy costs. Plan sponsors should continue to monitor the pipeline and consider the Specialty Diagnostic program to help streamline strategies. Additionally, there will be much growth and movement in other areas within the health care continuum, including technology-driven initiatives like telemedicine. Employers will continue to engage their vendors and networks to maximize efficiency and minimize costs. Value-based health care will also likely continue to drive consumerism and employer-based programs. Employers will continue to engage their vendors and networks to maximize efficiency and minimize costs. Valuebased health care will also likely continue to drive consumerism and employer-based programs. References 1 20th Annual Willis Towers Watson/National Business Group on Health Best Practices in Health Care Employer Survey, 2015; accessed on January 27, 2016: IC-Types/Survey-Research-Results/2015/11/full-report-2015-towers-watson-nbgh-best-practices-in-healthcare-employer-survey 2 The doctor is in...on your computer, September 2015; accessed on January 27, 2016: thefreelibrary.com/the+doctor+is+in+...+on+your+computer.-a With $245 billion spent on diabetes, telemedicine looks to cut the cost, April 2014; accessed on January 29, 2016: 4 The Potential for Telehealth Within the Pharmacy Space, August 2015; accessed on January 28, 2016: 5 Ahead of the Curve: Top 10 Emerging Health Care Trends Implications for Patients, Providers, Payers and Pharmaceuticals, October 2014; accessed on January 27, 2016: AMCPFoundaticonTrendsDoc 6 Six Big Trends to Watch in Health Care for 2016, December 2015; accessed on January 27, 2016: healthaffairs.org/blog/2015/12/30/six-big-trends-to-watch-in-health-care-for Things to Know About Value-Based Insurance Design, January 2016; accessed on January 27, 2016: 8 Amgen scores PCSK9 exclusive in pay-for-performance deal with Harvard Pilgrim, November 2015; accessed on January 28, 2016: 9 Express Scripts rolls out value-based pricing for cancer meds, November 2015; accessed on January 28, 2016: 17 Rx Collaborative: 2015 Annual Report to Employers

20 About Willis Towers Watson Willis Towers Watson (NASDAQ: WLTW) is a leading global advisory, broking and solutions company that helps clients around the world turn risk into a path for growth. With roots dating to 1828, Willis Towers Watson has 39,000 employees in more than 120 countries. We design and deliver solutions that manage risk, optimize benefits, cultivate talent, and expand the power of capital to protect and strengthen institutions and individuals. Our unique perspective allows us to see the critical intersections between talent, assets and ideas the dynamic formula that drives business performance. Together, we unlock potential. Learn more at willistowerswatson.com. Copyright 2016 Willis Towers Watson. All rights reserved. US-16-OTH-1684 willistowerswatson.com